JERUSALEM 
After weeks of deadlock, Israeli Prime Minister Benjamin Netanyahu reached an agreement with rival parties on Thursday to form a new government that appears set to address pressing domestic issues while putting peacemaking with the Palestinians on the back burner.

The new coalition government will be the first in years without ultra-Orthodox Jewish parties.

The three main coalition partners are to sign an agreement Thursday after weeks of tough negotiations, a Yesh Atid spokeswoman said on condition of anonymity, pending a formal announcement.

"It's apparently the end. Or really the beginning," Yesh Atid leader Yair Lapid wrote on his Facebook page.

Noga Katz, a spokeswoman for Netanyahu's Likud party said she expects the agreement to be signed after a meeting later in the day.

Talks had stalled over several thorny issues, including the division of key Cabinet portfolios and plans to reform the country's military draft. The new government is expected to end a controversial system of giving automatic draft exemptions to ultra-Orthodox Jewish seminary students.

If all goes according to plan, the government will be sworn in by Monday next week, two days before President Barack Obama visits Israel.

Although Netanyahu' Likud-Yisrael Beitenu bloc emerged as the biggest faction in the Jan. 22 election with 31 seats, he has struggled to form a coalition with the necessary 61-seat majority of 120 seats in parliament.

Netanyahu courted ultra-Orthodox Jewish parties who have been his traditional partners but coalition partners were unwilling to sit in government with them.

In recent decades, ultra-Orthodox parties have used their kingmaker status to secure budgets for their minority religious schools and seminaries. Tens of thousands of young ultra-Orthodox males are granted exemptions from military service in order to devote their lives, theoretically at least, to religious study.

The benefits have sparked animosity among the wider Israeli public.

Instead of the ultra-Orthodox, Netanyahu's bloc has now joined up with two parties led by charismatic newcomers who made big gains in the election.

Yesh Atid, founded by former TV personality Yair Lapid, won 19 seats in the election on a message promising relief to Israel's struggling middle class and an end to draft exemptions for the ultra-Orthodox.

As head of the second largest party in parliament, Lapid will serve as the new finance minister, a position with great influence over setting the government's budget. It will also control the Education Ministry.

The Jewish Home, a party linked to the West Bank settler movement led by high-tech millionaire Naftali Bennett, will control the Housing and Trade ministries.

Netanyahu's bloc will retain control of the powerful defense and interior ministries.

The new coalition is well-positioned to take on domestic issues. Both Bennett and Lapid formed a close alliance during the coalition negotiations, with near identical positions on the need to press the ultra-Orthodox to serve in the military and enter the work force.

For years, religious seminary students have been given exemptions from the draft, and allowed to collect welfare stipends into adulthood while continuing their studies. The system has led to widespread poverty in the ultra-Orthodox sector and bred resentment among the general public.

Social issues weighed heavy in the election and campaign promises for improving lives for the middle class attracted voters to both Lapid and Bennett. Hundreds of thousands of Israelis took to the streets in the summer of 2011 to demonstrate against the gaps between rich and poor, low wages and skyrocketing housing prices.

Yesh Atid and the modern Orthodox Jewish Home surged in popularity by promising to change the system and rallied Israelis under the promise to "ease the burden" on middle class Israelis who serve in the military, work and pay taxes while the cost of living continues to rise.

But the parties take far different approaches to peacemaking with the Palestinians.

Lapid has said he would not sit in a government that is not making a serious effort to reach peace. Yet his campaign made little mention of the Palestinian issue, focusing almost entirely on his social and economic agenda and raising questions about his commitment to the diplomatic arena.

Bennett, a former leader of the West Bank settlement movement, opposes any concessions to the Palestinians and has even advocated annexing large chunks of the West Bank, the heartland of any future Palestinian state. His nationalistic party supports building settlements citing biblical and historic reasons.

With peace talks stalled for the past four years, and Bennett skeptical that an agreement will ever be reached with the Palestinians, he has said he would not object to the government holding peace talks.

The Palestinians have refused to negotiate with Israel unless settlement construction ends in the West Bank and east Jerusalem, areas captured by Israel in the 1967 Mideast war from Jordan which the Palestinians are demanding for their future state.

Former Foreign Minister Tzipi Livni, who leads a small dovish party committed to reaching peace with the Palestinians, joined Netanyahu's coalition last month with promises that she would be his chief peace negotiator.

It remains unclear how much authority she will have, however, and Netanyahu has already signaled that he will make the final decisions in any negotiations. The Jewish Home party has indicated that it does not want the dovish Livni to handle the peace process.

This has raised deep questions about what Livni can hope to accomplish.As foreign minister, Livni served as the chief negotiator with the Palestinians under former Prime Minister Ehud Olmert. While both sides have said they made great progress during that time, the talks collapsed in late 2008 and have remained virtually frozen since Netanyahu took office early the following year.

Despite their differences on many issues, namely talks with the Palestinians, Yesh Atid and the Jewish Home formed a united front in talks with Netanyahu, a tactic that made talks difficult and left ultra-Orthodox parties outside the government.

Netanyahu was granted an extra two week extension to try and reach a deal after he failed to reach an agreement a month after the election.

"We wanted a broader more stable coalition and we didn't hide that at any stage of the negotiations, unfortunately our partners wanted differently," Zeev Elkin of Netanyahu's Likud Party told Israel radio.

"Under the difficult near impossible conditions, we had no other option and more or less had to conduct coalition talks under extortion, there is no other expression to describe it, under these conditions I think we obtained the maximum," Elkin said.

Shas leader Arieh Deri told Army radio that he will join a fighting opposition. "Our first mission is to topple this government," he said.